With warnings 2021 could be the year when the worst of the recession hits, taking action right now might be an important move to safeguard your practice. By John Burfitt
As if 2020 has not been enough to contend with, financial predictions for business in 2021 are not exactly promising the much hoped for light at the end of the tunnel.
The Federal Government forecasts the Australian economy will shrink 2.25 per cent in the 2020/21 financial year and the unemployment rate will increase to 8.75 per cent. The JobKeeper scheme is also due to end in March 2021, which is when many predict the true impact of the financial downturn will be felt.
Which is why taking action now, by conducting a thorough business review of your practice, could ensure it is in shape to withstand whatever the future has in store.
It is also the time, Dr Phillip Palmer of Prime Practice consultancy says, to put good business strategies into play that could make the difference to how a practice rides out any ups and downs of the impending financial cycle.
“While many dentists I have been speaking to say business is good, if there is going to be a downturn in the months ahead, there are certain things you can do to mitigate any issues,” explains
At the top of that list are measures such as ensuring patient care is operating at optimum standards, money is being put aside for a rainy day and debts are being paid off, and implementing a marketing program focused on retention. “This is a time when every patient—no matter who they are—needs to be seen as important, and hanging on to their business is crucial,” he says. “You have to make sure every patient sees value in their appointment today, so they will be returning in six months’ time for their next one. You also need to be creating a sense of value in every step of the patient experience—from how you engage and communicate with them to how you treat them in the chair—so they like dealing with you and will make returning to see you a priority, despite anything else that might be happening further down the track.”
Any additional dollars earned in current times should also be put aside to create a reserve fund to tide the business over, as well as to pay down any business loans or credit cards. “This is about creating a financial buffer that just gives you breathing space if there is a slowdown,” Dr Palmer says. “Even if you can put away 10 per cent of the business income now, that could prove a major help later on.”
One of the established rules of business in tough times is that, instead of reducing the marketing budget, this is when it should be increased. Dr Palmer recommends that smart marketing should be implemented in advance, not when business is slowing. “Marketing dollars well spent can improve the size of the pool of patients you can be booking in six months’ time,” he says. “And if you are taking great care of your patients now, that should also take care of the word-of-mouth marketing later on.”
Having a specific plan tailored for the months ahead is another step in the right direction, says Alex Robertson, associate principal of Brisbane accounting firm Marsh Tincknell. This might be the ideal time to pull out the practice’s business plan, amend it to factor in any challenging times ahead and then pay close attention to how it is rolled out.
“Proper planning leads to improved performance, so review closely your business plan and set a realistic budget for the year ending June 30, 2021,” he says. “Have regular staff meetings to review how the practice is going and agree on action plans going forward.
“Also, understand your cashflow and have a cashflow forecast and take action so you don’t run out of cash. Look at your wage percentage and overhead percentage and benchmark these against industry standards.”
Part of the practice review needs to also be applied to patient behaviour, especially the number of future appointments. “If this is decreasing, then develop actions to mitigate this, which may include having to cut costs.”
Completing a review of costs within the practice, and identifying what can be cut without impacting the patient experience or staff numbers, can be an important streamlining of the balance sheets, says Professor Rahat Munir, head of the Department of Accounting and Corporate Governance at the Macquarie Business School.
“A turbulent time can actually prove to be a good reason for planning and strategy formulation,” Professor Munir says. But as important as cutting extraneous costs are, he stresses it should be just one part of a comprehensive review of the way the entire business is being run.
“Focusing solely on cost-cutting measures will impact the bottom line of the smaller business in the long run, but putting a focus on maintaining customers, and cashflow management in addition to ancillary cost-cutting measures are all critically important,” he says. “In the short term, a business should revisit their costs to determine if they can cut them back, however, they should never lose focus of their marketing. If a business is not strategic, then they will not be able to sustain in an economic downturn.”
While you have time, conducting a business performance review with the benefit of foresight, rather than reacting in panic in the midst of a failing market, could avoid drama further down the track, Dr Phillip Palmer adds.
“Looking at each area of your practice and deciding if there’s enough being done to keep the patients loving their experience is important at any time, but even more so now with what many experts predict might be around the corner,” he says. “Have a plan to work with, and then take care of business, one area at a time.”